Prof. Uche Uwaleke, the Head, Department of Finance and Banking, Nasarawa State University, Keffi, says the current inflation rate of 18.3 is not good for the development of the nation’s capital market.
Uwalake who reacted to the current double digit inflation to the capital market told the News Agency of Nigeria on Monday in Abuja, that the shrinking growth of the market was not good for investors.
NAN recalled that the National Bureau of Statistics put Nigeria’s consumer index at 18.3 per cent in October 2016.
This he noted was followed by a 17.9 per cent growth in the previous month and above market expectations of 18.2 per cent.
Uwaleke said: “This is the highest inflation rate since October 2005, as prices of goods and services continued to rise, while some companies are considering of delisting from the Stock Exchange.’’
He said that the current inflation rate in the country would deter investors,’ especially foreign investors from participating in the nation’s stock market.
He said: “Particularly now that foreign investors’ participation has been on the decline, the spike in inflation rate will only succeed in further dampening the confidence of domestic investors.
“There is a correlation between inflation rate and stock market performance.
“Recall that on Jan.1 this year, the Nigerian Stock Exchange All Share Index was around 28,000 points with inflation rate still single digit at less than 10 per cent.
“Currently, the return is negative with the NSE All Share Index struggling to stay above 26,000 points.”
He said that the inflation figure of 18.3 per cent indicated that the stock market had lost so much in terms of real returns since the year began.
He said that the key drivers of the inflation in the country had remained the same over the years, this he said were high cost of electricity, fuel, housing and food.
He, however, said that the fate of the nation’s stock market was tied to the recovery of the micro- economic fundamentals, including subdued inflationary pressure.
According to Uwaleke, the way out of the current inflation challenge is for government to make commitment in deepening investment in agriculture and infrastructure development.
This according to him would accelerate solution and return confidence in the sector.
On Monetary Policies of Central Bank of Nigeria, Uwaleke added that CBN was advised to relax policy by reducing the monetary policy rate from the current 14 per cent to 12 per cent.
This he said, would bring down the cost of borrowing especially for Small and Medium Enterprises.
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